73.Suppose at the beginning of 2015, Jerry\'s basis in his S corporation stock i

Question

73.Suppose at the beginning of 2015, Jerry's basis in his S corporation stock is $0, he has a $0 debt basis associated with a $10,000 loan he made to the S corporation and a $5,000 suspended loss from the S corporation. In 2015, Jerry contributed $8,000 to the S corporation, and the S corporation had ordinary income of $4,000. Assume that Jerry owns 40% of the S corporation. What is Jerry's stock and debt basis at the end of 2015?

A. $0 stock basis; $4,600 debt basis.

B. $0 stock basis; $9,600 debt basis.

C. $4,600 stock basis; $0 debt basis.

D. $9,600 stock basis; $0 debt basis.

E. None of these.

Explanation / Answer

Debt basis

Stock basis will be $0 as his stock basis has not been restored to its outstanding debt amount of $10000.

Ans is A.

Beginning of year basis $0 + Contribution 8000 + share of S corporation income (4000 x 40%) 1600 - Suspended loss (5000) Debt basis $4600

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